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European shares drop to 11 week low on economy fears

European shares drop to 11 week low on economy fears
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First Published: Wed, Jun 08 2011. 05 14 PM IST
Updated: Wed, Jun 08 2011. 05 14 PM IST
London: European shares fell for a sixth day on Wednesday, with sentiment hit by a bearish assessment of the US economy by Fed chairman Ben Bernanke.
The latest losing streak has knocked almost 4.4% off the pan-European FTSEurofirst 300 index, as a string of disappointing data from the world’s largest economy, including weak labour and manufacturing figures, raised fears that the pace of recovery may be slowing.
By 4:51am, the index was down 1.1% at 1,092.25 points, having earlier fallen as low as 1,089.78 -- its lowest intraday level since 21 March.
Investor sentiment was rattled after Bernanke acknowledged a slowdown in the economy but made no suggestion of a further stimulus to boost the economy.
“The question marks regarding the growth dynamics for the global economy are becoming bigger and this is weighing on the markets,” said Tammo Greetfeld, equity strategist at UniCredit.
“If we put this in perspective, the Euro STOXX could move towards the region of 2,650 or 2,700 points, which is the lower end of the valuation that we have seen over the last two years,” he said, adding that whether these levels could attract buyers depended on the extend of economic slowdown and deterioration of the euro zone debt crisis.
The Euro STOXX 50, the euro zone’s blue chip index, was down 1% at 2,746.68 points.
Mining shares, which are the worst performing sectors in Europe so far this year, fell 2.1% as copper prices shed 1.5%, reflecting a rise in the dollar as risk aversion intensified.
Some investors were likely to have been disappointed by a lack of indications from Bernanke of further quantitative easing measures to support the economy in the wake of the Fed’s current $600 billion government bond buying, known as QE2, which is set to end in June.
“Other Fed members were also speaking yesterday with much the same message coming through: monetary policy is likely to remain accommodative for some time yet, but further QE looking unlikely at this stage,” Evolution Securities analysts wrote in a note.
Among individual fallers, Kabel Deutschland fell 6.2%, as traders pointed to unsurprising earnings and a proposed dividend that was not as high as some had hoped.
The euro, which has been used by a number of investors as a barometer for “risk-on/risk off” trends over the past year, has been sending a contrary signal over the past two weeks, rising about 5% while the Euro STOXX 50 has dropped 5% over the same period.
The 30-day rolling correlation between the euro and the Euro STOXX 50 has fallen to 0.2 from 0.6 back in early May, highlighting the fact that correlation strategies may be becoming less effective in the short-term.
Technical indicators also painted a bearish picture for equities, with the 14-day relative strength index on the FTSEurofirst 300 at 31.9 -- inching towards “oversold” territory of 30 and below.
Adding to the downbeat mood, German exports in April fell the most since January 2009, the Federal Statistics Office reported.
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First Published: Wed, Jun 08 2011. 05 14 PM IST
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